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Mr. Michael Mornson, City Manager 3 Mr. Warren Rolek, Superintendent July 7, 2000 Page 2 In order to establish an abatement project, a public hearing by both entities would be required. At the hearing, the plan to use the abated taxes, the term of the abatement and the amount of total abatement would be set forth. Our projections of use of abatement assume the City and School District will continue their 50/50 split and thus the debt service would be paid, in part, from the abated taxes. However, the City's share of property taxes is only $28,689, which would provide a total revenue of $59,378. Since the value of the property does not produce sufficient abated taxes to cover debt service, additional funds of the City and/or the School District will be required. The calculations and forecasted shortfall are shown on the Summary Page attached hereto. The potential tax impact for this program also is contained in the attached exhibits. 2. Referendum Cities and school districts also may seek the authority to issue debt for various purposes through a referendum process. This requires a resolution calling for a referendum, publishing a notice, identifying the polling places and providing a statement of tax impact. Since the Park is located entirely in the City, it is assumed the referendum would be conducted by the City and not by the School District or by both entities. Prior to the referendum, the City and School District should enter into an agreement outlining the proportional share of debt responsibility. Thus, when estimates of tax impact are prepared, realistic forecasts can be made. When a city seeks authorization to issue debt through a referendum, the taxes are spread against market value rather than the traditional net tax capacity. In this instance, the taxes levied by the City would be spread on market value but the School District, by virtue of the fact that it has entered into an "outside" agreement with the City, would levy its taxes in the traditional manner against net tax capacity. In the event the agreements were dissolved, the City would then have to levy the entire amount against market values. We note that taxes paid on a market value basis benefit non-homestead property in that all property having the same market value would pay the same tax regardless of the type of property. The attached exhibits show the estimated tax impact for this scenario. You will note that we have assumed the City spreads taxes against market value but the School District spreads taxes against tax capacity. As an example, the tax impact for a $1 million financing over 10 years for a $150,000 residential homestead property for City taxes would be $13.31, while that same property for School District taxes would be $10.87. 3. Lease Revenue As noted earlier, the City owns the Park but the City and School District maintain the facility. If the property is sold to the St. Anthony EDA, and that entity issues the debt, the City and the School District would enter into a lease arrangement with the EDA. While this would not necessarily constitute debt of either the City or the School District, the levies would be made to pay debt of another entity and thus would be outside any levy limits imposed by the Legislature. Based on earlier discussions with City and School District staff, this financing approach would place a higher responsibility on the City to make lease payments and thus we have assumed an 80/20 split between the City and the School District, respectively. This split can be modified once the parties agree to the percentages.